Back Matter

References

Chapter I

  • Balassa, Bela,The Purchasing Power Parity Doctrine: A Reappraisal,Journal of Political Economy, (1964).

  • Bayoumi, Tamim, Peter Clark, Steve Symansky and Mark Taylor,Robustness of Equilibrium Exchange Rate Calculations to Alternative Assumptions and Methodologies,IMF working paper WP/94/17, (1994).

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  • Brunner, Allan and Steven Kamin,Determinants of the 1991-93 Japanese Recession,International Finance Discussion Paper series, No. 479, Board of Governors of the Federal Reserve System, Washington DC, (1994).

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  • Corker, Robert,External Adjustment and the Strong Yen: Recent Japanese Experience”, IMF Staff Papers, Volume 36, No. 2, pages 464493, (June 1989).

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  • Dornbusch, Rudiger,Expectations and Exchange Rate Dynamics,Journal of Political Economy, 84 (1976), pp. 116176,

  • Ito, Takatoshi, The Japanese Economy, MIT press, 1992.

  • Krugman, Paul,Is the Strong Dollar Sustainable?” in the U.S. Dollar-Recent Developments, Outlook, and Policy Options, Kansas City: Federal Reserve Bank, 1985.

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  • McKinnon, Ronald,Dollar and Yen: The Problem of Financial Adjustment between the United States and Japan,Asia/Pacific Research Center, Stanford University, 1993.

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  • Meredith, Guy,Revisiting Japan’s External Adjustment Since 1985,IMF Working Paper WP/93/52, (July 1993).

  • Meredith, Guy, “Alternative Long-Run Scenarios,” in Japan: Analytical Studies on Savings Behavior and the Asset Price Bubble” edited by Ulrich Baumgartner and Guy Meredith, IMF Occasional Paper Series, 1994.

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Chapter II

  • Atkinson, A. B.,On the Measurement of Inequality,Journal of Economics Theory, Vol. 2 (1970).

  • Barro, Robert,Are Government Bonds Net Wealth?Journal of Political Economy, Vol. 32 (1974), pp. 10951117.

  • Bickley, James M.,Value-Added Taxes: Concepts, Policy Issues, and OECD Experiences,U.S. Library of Congress, Congressional Research Service, report No. 94-41E (January 1994).

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  • Hagemann, R. P. et al., “Tax Reform in OECD Countries: Economic Rationale and Consequence,OECD working papers, No. 40 (Paris, 1987).

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  • Higuchi, Y.,Reduction in Income Tax and Labor Supply of Married Women,Contemporary Economics (Tokyo, 1985).

  • Iwata, K.,Myth of the Tax Reform,Myth of the Japanese economy, Nihon Keizai Shinbun Sha, (Tokyo, 1994).

  • Kakwani, N. C.,Measurement of Tax Progressivity: An International Comparison,The Economic Journal, Vol. 87 (1976).

  • Ministry of Finance, An Outline of Japanese Taxes, 1993 and 1994 (Tokyo).

  • Noguchi, Y.,Aging of Population, Social Security, and Tax Reform,NBER East Asian Seminar on the Economics and Politics of Tax reform, A. Krueger and T. Ito eds., University of Chicago Press (Chicago, Illinois, 1992), pp. 211230.

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  • Organisation for Economic Co-operation and Development, Economic Surveys: Japan, 1992/93 and 1993/94 (Paris)

  • Otake, K.,An Outline of the Tax Reform,Finance, November (1994).

  • Tachibanaki, T. and 0. Ichioka,The Japanese Tax Reform: Efficiency Versus Equity,IMF WP/90/86, September 1990.

  • Tait, Alan A. (ed.), Value-Added Tax: Administrative and Policy Issues, International Monetary Fund, 1991,

  • Toyoda, T.,Tax Progressivity and Income Distribution Coefficient,Keizai Kenkvu (Economic Study), Vol. 38 (1987).

  • U.S. Department of the Treasury, “Taxing business income once,Integration of the Individual and Corporate Tax Systems, U.S. Government Printing Office (1992)

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Chapter III

  • Coyle, William, Japan’s Rice Policy, Foreign Agricultural Economic Report No. 164 (Washington: United States Department of Agriculture, 1981.

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  • Food Agency, Rice and Wheat in Japan (Tokyo: The Food Agency, March 1991).

  • Food Agency, Japan’s Food Control System (Tokyo: The Food Agency, March 1992).

  • Food Agency, An Outline of Food Agency Operations (Tokyo: The Food Agency, March 1993).

  • Food and agriculture Organization of the United Nations (FAO), Impact of the Uruguay Round on Agriculture (Rome: FAO, April 3-7, 1995).

  • General Agreement on Tariffs and Trade (GATT), Trade Policy Review Mechanism: Japan (Geneva: GATT, 1995).

  • Goldin, Ian, and Dominique van der Mensbrugghe,The Uruguay Round: An Assessment of Economywide and Agricultural Reforms,Paper presented at the Conference on the Uruguay Round and the Developing Economies, World Bank, January 26-27, 1995.

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  • Greenaway, David,The Uruguay Round: Agenda, Expectations and Outcomes,” in Agriculture in the Uruguay Round, ed. by K.A. Ingersent, A.J. Rayner, and R.C. Hine (New York: St. Martin’s Press, 1994), pp. 825.

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  • Harrison, Glenn W., Thomas F. Rutherford, and David G. Tarr,Quantifying the Uruguay Round,Paper presented at the Conference on the Uruguay Round and the Developing Economies, World Bank, January 26-27, 1995.

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  • Hathaway, Dale E., and Merlinda D. Ingco,Agricultural Trade Liberalization in the Uruguay Round,Paper presented at the Conference on the Uruguay Round and the Developing Economies, World Bank, January 26-27, 1995.

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  • Hayami, Yujiro, Japanese Agriculture Under Siege: The Political Economy of Agricultural Policies (New York: St. Martin’s Press, 1988).

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  • Hayami, Yujiro, and Vernon W. Ruttan, Agricultural Development: An International Perspective (Baltimore: Johns Hopkins University Press, 1985).

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  • Hemmi, Kenzo,The Japanese Perspective,” in Agriculture in the Uruguay Round, ed. by K.A. Ingersent, A.J. Rayner, and R.C. Hine (New York: St. Martin’s Press, 1994), pp. 14056.

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  • Hillman, Jimmye S., Technical Barriers to Agricultural Trade (Boulder: Westview Press, 1991).

  • Hillman, Jimmye S., and Robert A. Rothenberg, Agricultural Trade and Protection in Japan (London: Trade Policy Research Centre, 1988).

  • Industrial Bank of Japan, Milk and Dairy Product Industry Under Pressure of Structural Adjustment (Tokyo: Industrial Bank of Japan, 1995).

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  • Ingco, Merlinda D.,Agricultural Trade Liberalization in the Uruguay Round: One Step Forward, One Step Back?Paper presented at the Conference on the Uruguay Round and the Developing Economies, World Bank, January 26-27, 1995.

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  • Jichi Sogo Center, The Situation of Local Public Finance in Japan (Tokyo: Jichi Sogo Center, March 1993).

  • Josling, Tim, et al., “The Uruguay Round Agreement on Agriculture: An Evaluation,Commissioned Paper No. 9, International Agricultural Trade Research Consortium, July 1994.

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  • Kawagoe, Toshihiko,Deregulation and Protectionism in Japanese Agriculture,” in The Japanese Experience of Economic Reforms, ed. by Juro Teranishi and Yutaka Kosai (New York: St. Martin’s Press), pp. 36691.

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  • Martin, Will, and Joseph, Francois, Bindings and Rules as Trade Liberalization,” Paper presented at the Festschrift Conference for Professor Robert Stern, University of Michigan, November 18-20, 1994.

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  • Minami, Ryoshin, The Economic Development of Japan: A Quantitative Study, Second Edition (New York: St. Martin’s Press, 1994).

  • Ministry of Agriculture, Forestry, and Fisheries (MAFF), The Direction of Policy Development in Japanese Agriculture in a New International Environment (Tokyo: MAFF, October 1994).

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  • Ministry of Agriculture, Forestry, and Fisheries (MAFF), Abstract of Statistics on Agriculture, Forestry, and Fisheries (Tokyo: MAFF, 1994).

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  • Ministry of Agriculture, Forestry, and Fisheries (MAFF), Annual Report on Agriculture (various issues) (Tokyo: MAFF, 1992-94).

  • Ministry of Agriculture, Forestry, and Fisheries (MAFF), The Basic Direction of New Policies for Food. Agriculture and Rural Areas, (Tokyo: MAFF, November 1992).

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  • Organisation for Economic Cooperation and Development (OECD), Agricultural Policies, Markets and Trade in OECD Countries: Monitoring and Outlook 1995 (Paris: OECD, 1995).

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  • Organisation for Economic Cooperation and Development (OECD), National Policies and Agricultural Trade: Country Study Japan (Paris: OECD, 1987).

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  • Rapkin, David P., and Aurelia George,Rice Liberalization and Japan’s Role in the United States: A two-Level game Approach,” in World Agriculture and the GATT, ed. by William P. Avery (Boulder: Lynne Rienner Publishers, 1993), 5594.

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  • Sazanami, Yoko, Shujiro Urata, and Hiroki Kawai, Measuring the Costs of Protection in Japan (Washington: Institute for International Economics, January 1995).

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  • Van der Meer, Cornells L.J., and Saburo Yamada, Japanese Agriculture: A Comparative Economic Analysis (London: Routledge, 1990).

Chapter IV

  • Bhagwati, Jagdish,VERs, Quid Pro Quo DFI, and VIEs: Political-Economy Theoretic Analyses”, International Economic Journal, Spring 1987, pp. 114.

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  • Bjorksten, Neil,Voluntary Import Expansions and Voluntary Export Restraints in an Oligopoly Model with Capacity Constraints”, Canadian Journal of Economics, 27, May 1994, pp. 44657.

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  • Dinopoulos, Elias and Mordechai Kreinin,An Analysis of Import Expansion Policies”, Economic Enquiry, 28, January 1990, pp. 99108.

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  • Irwin, Douglas A., Managed Trade: The Case Against Import Targets, The American Enterprise Institute, Washington, D.C., 1994.

Chapter V

  • Backus, David K., and Kehoe, Patrick J.,International Evidence on the Historical Properties of Business Cycles,American Economic Review, Vol. 82 (September 1992), pp. 86488.

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  • Beveridge, Stephen, and Nelson, Charles,A New Approach to the Decomposition of Economic Time Series with Particular Attention to the Measurement of the Business Cycle,Journal of Monetary Economics, Vol. 7 (1981), pp. 15174.

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  • Blanchard, Olivier J., and Quah, Danny,The Dynamic Effects of Aggregate Demand and Supply Disturbances,American Economic Review (September 1989), pp. 65573.

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  • Economic Planning Agency, “Economic Survey of Japan 1993-1994” (Japan, 1994).

  • Iwamoto, Yasushi, and Hideyuki Kobayashi,Testing for a unit root in Japanese GNP,Japan and the World Economy, Vol. 4 (1992), pp. 1737.

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  • OECD, Economics Department, “Estimating Potential Output, Output Gaps, and Structural Budget Balances” (October 1994).

  • Perron, Pierre,Trends and Random Walks in Macroeconomic Time Series: Further Evidence from a New Approach,Journal of Economic Dynamics and Control, Vol. 12 (1988), pp. 33346.

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  • Perron, Pierre,The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis,Econometrica, Vol. 57 (November 1989), pp. 1361401.

  • Prescott, Edward C.,Theory Ahead of Business Cycle Measurement,Federal Reserve Bank of Minneapolis Quarterly Review (Fall 1986), pp. 922.

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  • Shapiro, Matthew D., and Watson, Mark W.,Sources of Business Cycle Fluctuations,” in Stanley Fischer, ed., NBER Macroeconomics Annual, (Cambridge: MIT Press, 1988), pp. 11148.

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  • Takeuchi, Y.,Trend and nonstationarity in macroeconomic time series: An analysis based on Japanese data” (manuscript, University of Tokyo, 1987).

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Chapter VI

  • Davis, Steven J.,Fluctuations in the Pace of Labor Reallocation,Carnegie-Rochester Conference Series on Public Policy, Vol. 27 (1987), pp. 335402.

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  • Lilien, David M.,Sectoral Shifts and Cyclical Unemployment,Journal of Political Economy, Vol. 90 (1982), pp. 77793.

  • Lilien, David M.,Labor Market Dispersion and the Natural Rate of Unemployment,” (manuscript, University of California, Irvine, 1990).

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Chapter VII

  • Balassa, Bela,The Purchasing Power Parity Doctrine: A Reappraisal,Journal of Political Economy, 1964.

  • Economic Planning Agency, Economic Survey of Japan. 1993-1994, Government of Japan, July 1994.

  • Hoffmaister, Alexander W., and Garry J. Schinasi,Asset Prices, Financial Liberalization and the Process of Inflation in Japan,IMF Working Paper, WP/94/153, December, 1994.

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  • Kähkönen, Juha,Movements in Asset Prices since the-mid-1980s”, in Saving Behavior and the Asset Price “Bubble” in Japan: Analytical Studies, edited by U. Baumgartner and G. Meredith, International Monetary Fund, Washington, D.C., 1995.

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  • Kravis, I.B., and R.E. Lipsey,Toward an Explanation of National Price Levels,Princeton Studies in International Finance, No. 52, Princeton, 1983.

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  • OECD, Agricultural Policies, Markets and Trade in OECD Countries: Monitoring and Outlook 1995, Paris, 1995a.

  • OECD, Economic Survey, Paris, 1995b.

  • Pilat, Dirk,The Sectoral Productivity Performance of Japan and the U.S., 1885-1990,Review of Income and Wealth, Series 39, Number 4, December 1993.

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  • Price Structure Policy Committee, “Interim Report on Deliberations of Price Structure Policy Committee,December 22, 1994.

  • Samiei, Hossein, and Garry J. Schinasi,Real Estate Price Inflation, Monetary Policy, and Expectations in the United States and Japan,IMF Working Paper, WP/94/12, January, 1994.

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  • Sazanami, Yoko, Shujiro Ruata and Hiroki Kawai, Measuring the Costs of Protection in Japan, Institute for International Economics, Washington, D.C., 1995.

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  • van Ark, Bart, and Dirk Pilat,Productivity Levels in Germany, Japan, and the United States: Differences and Causes,Brookings Papers: Microeconomics, Number 2, 1993.

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Chapter VIII

  • Balassa, Bela,The Purchasing Power Parity Doctrine: A Reappraisal,Journal of Political Economy, (1964).

  • Bergsten, Fred and Marcus Noland, Japan in the World Economy, Washington, D.C., Institute for International Economics, (1989).

  • Chadha, Bankim,Real Exchange Rate and Output Variability: The Role of Sticky Prices”, IMF Staff Papers, Volume 37, No. 3, 593611, September, 1990.

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  • Cline, William, R.,U.S. External Adjustment: Progress, Prognosis, and Interpretation”, in C.F. Bergsten, ed., International Adjustment and Financing, Washington, D.C., Institute for International Economics, 1989.

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  • Corker, Robert,External Adjustment and the Strong Yen: Recent Japanese Experience”, IMF Staff Papers, Volume 36, No. 2, pages 464493, (June 1989).

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  • Deppler, Michael and Duncan Ripley,The World Trade Model: Merchandise Trade”, IMF Staff Papers, 25, 1978, pp. 147206.

  • Dornbusch, Rudiger,Expectations and Exchange Rate Dynamics,Journal of Political Economy, 84 (1976), pp. 116176,

  • Economic Planning Agency, Economic Survey of Japan 1993-94: A Challenge to New Frontiers Bevond the Severe Adjustment Process, Government of Japan, Tokyo, July 1994.

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  • Economic Planning Agency, “Nature of the Effects of High Yen Appreciation”, Government of Japan, Tokyo, June 2, 1995.

  • Goldstein, Maurice and Mohsin Khan,Income and Price effects in Foreign Trade”, in Handbook of International Economics, Volume 2, edited by Ronald Jones and Peter Kenen, North Holland, Amsterdam, pp. 10411105, (1985).

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  • Hooper, Peter and Jaime Marquez,Exchange Rates, Prices, and External Adjustment in the United States and Japan”, Board of Governors of the Federal Reserve System, International Finance Discussion Papers, No. 456, October 1993.

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  • Krugman, Paul,Differences in Income Elasticities and Trends in Real Exchange Rates”, European Economic Review, 33, 1989, 10311054.

  • Marquez, Jaime,Bilateral Trade Elasticities”, Review of Economics and Statistics, 72, pp. 7077, (1990).

  • Khosla, Anil,Exchange Rate Pass-Through and Export Pricing Evidence from the Japanese Economy”, Journal of the Japanese and International Economies, March 1991, pp. 5051.

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  • Khosla, Anil and Juro Teranishi,Exchange Rate Pass-Through in Export Prices--An International Comparison”, Hitotsubashi Journal of Economics, Volume 30, pp. 3148, (1989).

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  • Lawrence, Robert Z.,Japan’s Different Trade Regime: An Analysis with Particular Reference to Keiretsu”, Journal of Economic Perspectives, No. 3, (1993)

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  • Marston, Richard,Pricing to Market in Japanese Manufacturing”, Journal of International Economics, Volume 29, pp. 21736, November (1990).

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  • McKinnon, Ronald,Dollar and Yen: The Problem of Financial Adjustment between the United States and Japan,Asia/Pacific Research Center, Stanford University, (1993).

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  • Meredith, Guy,Revisiting Japan’s External Adjustment Since 1985,IMF Working Paper WP/93/52, Washington, D.C., (1993).

  • MITI, “Results of the Second Japan-U.S. Joint Price Survey”, Ministry of International Trade and Industry, Tokyo, May 20, (1991).

  • Ohno, Kenichi,Export Pricing Behavior of Manufacturing: a U.S. -Japan Comparison,IMF Staff Papers, Vol. 36, No. 3, (1989).

  • Saxonhouse, Gary R.,What Does Japanese Trade Structure Tell Us about Japanese Trade Policy?”, Journal of Economic Perspectives, No. 3 (1993).

  • Warner, Dennis and Mordechai Kreinin,Determinants of International Trade Flows”, Review of Economics and Statistics, 65, 96104, (1983).

  • Yoshitomi, Masaru,The Japanese Problem and Price Differentials Between Home and Abroad”, paper presented at the Japan Economic Seminar, Columbia University, September, (1994).

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1/

A complete characterization of competitiveness, of course, requires a comparison of both prices and costs. A lack of long time series on unit labor costs prevents a comparison of costs, so the characterization of competitiveness is restricted to prices.

1/

Chart I.3 also indicates that along with the worldwide productivity growth slowdown in the early 1970s, the differential between productivity growth in Japan and the other industrial countries also moderated. A narrowing of this differential is consistent with breaks in the trends in the alternative measures of the real exchange rate at around this time.

1/

It is perhaps worth noting that large as these deviations are, they are still less than estimates of the deviation of the real effective value of the U.S. dollar from its trend during 1985--of over 35 percent.

2/

In recent years there has been a shift in Japan’s exports to higher-priced goods. This is most evident in the exports of automobiles where the proportion of luxury cars has increased. The magnitude of the recent increase in Japanese relative export unit values, therefore, may overstate the decline in competitiveness of Japanese exports. To minimize the possibility of such effects, the Bank of Japan export price index--which attempts to correct for such changes--was employed from 1972 onwards. For changes in the composition of Japanese exports see, for example, Ito (1992).

1/

An examination of the relative importance of various components of aggregate demand in a formal econometric model is provided by Brunner and Kamin (1994).

2/

A recession induced by monetary tightening--in contrast to an “autonomous” contraction in demand--would be expected to lead to a short-run appreciation of the real exchange rate.

3/

It should be noted that the increase in non-performing loans in bank portfolios following the collapse of the asset price bubble led to a widening of bank intermediation spreads, moderating the effective easing of monetary conditions.

1/

Real interest rates are calculated using a moving average of realized inflation over the preceding 12 months.

2/

There are several caveats to this interpretation that are well-known so they are not repeated here.

3/

Again, real interest rates are calculated using realized inflation over the preceding 12 months.

1/

Of course, what matters are relative supplies of assets rather than absolute supplies.

1/

During this period inflation in Japan was 2.6 percent a year below that in partner countries and so the real exchange rate appreciated by 3.8 percent a year.

2/

Calculated as 9.6 less 5.6 percent a year.

1/

The aggregate plotted in Chart I.1 includes banks, the trust accounts of banks, life insurance companies, the Norinchukin bank (an agricultural cooperative) and investment trusts. Postal life insurance is excluded since data are only reported from 1984 onwards.

2/

It is worth noting that, rather than reflecting a fundamental shift in attitudes to exchange rate risk, the shift away from foreign assets by life insurance companies may reflect changes in the regulatory environment facing these companies--in particular the imminent imposition of risk-based capital requirements.

1/

See also the discussion of calculations of Fundamental Equilibrium Exchange Rates (FEERs) by Bayoumi, Clark, Symansky and Taylor (1994).

1/

This model is developed in Corker (1989). See also Meredith, (1993).

1/

See Chapter I of “Japan--Recent Economic Developments--Supplementary Material” (SM/94/185, Supplement 1, 7/22/94).

2/

Horizontal equity calls for the equal tax treatment of equal individuals, while vertical equity calls for the unequal tax treatment of unequal individuals.

1/

The tax reform in 1988 included fundamental changes to the taxation of investment income, including an abolition of tax exemption of interest income from small savings, and an introduction of taxes on capital gains on equities.

1/

See Chapter III of “Japan--Recent Economic Developments” (SM/89/84, Supplement 1, 5/24/89) for a description and an analysis of the tax reform in 1987-88.

2/

This bracket creep, however, contributed to fiscal consolidation in the 1980s.

3/

The progressivity index was defined as a difference between Gt and Gb, where Gt is the Gini coefficient of taxes, calculated on the basis of a tax concentration curve showing the cumulative proportion of taxes against the cumulative proportion of income-receiving units, and Gb is the Gini coefficient for pretax income. According to this measure, a tax is judged to be progressive if it is more unequally distributed among taxpayers than is pretax income, thus resulting in a tax concentration curve that is more concave than the Lorenz curve. See Kakwani (1976) for further discussion.

4/

For a specific application of the progressivity index to Japan, see Toyoda (1987).

1/

The special treatment was officially estimated to reduce consumption tax receipts by about ¥500 billion in 1989, equivalent to about 9 percent of total receipts from the tax.

1/

Investment income (interest income, dividend income, and capital gains from the sales of portfolio stock investments) is taxed on a separate basis from other sources of personal income. Tax rates applied to investment income are generally independent of personal income tax rates.

2/

The employment income deduction applies to salary earners as a proxy for standardized costs. The amount of the deduction is determined depending upon the income level, with a declining marginal deduction rate as income grows.

3/

The tax threshold for a married employee with two children rose from ¥3.28 million to ¥3.54 million for the national income tax. For the local inhabitants tax, the threshold rose from ¥2.85 million to ¥3.03 million.

1/

In contrast, the ceilings of the 1994 temporary cut were very high (¥2 million for national and ¥200,000 for local tax), which were binding for few taxpayers.

2/

The most recent package of measures announced in late June 1995 confirmed the extension of the temporary income tax cut into 1996 unless economic activity shows particular improvement.

3/

Besides the consumption tax, a number of other indirect taxes still apply, including liquor, tobacco and petroleum excises, securities transaction tax, and stamp duties.

4/

Only a limited number of items are exempted. Exempt items include sales and leases of land; rents on residences; sales of securities, currency and similar instruments; provision of money-changing services; interest on loans; insurance premiums; sales of postal stamps; provision of public services; provision of certain medical services; provision of certain social welfare services; tuition and entrance examination fees; and other (childbirth cost, cremation costs, and special equipment for handicapped persons).

5/

See, for example, OECD (1993) for the coverage of the tax base in total household consumption.

6/

The credit method is often termed a European-style VAT. This method usually requires enterprises to produce invoices for all sales showing the amount of the VAT paid. See Bickley (1994) for different ways to levy VAT. Under the Japanese system, invoices have not been strictly required before the reform; the reform would impose invoice requirements for claiming tax credits.

1/

See, for example, Tait (1991).

2/

See, for example, Iwata (1994).

3/

The amount of marginal deduction (in millions of yen) is given by the following formula, where T represents 3 percent of their value-added, and S represents sales: T*1/20*(50-S).

4/

Therefore, the net consumption tax liability can be derived by applying a fixed rate ranging from 0.3 percent (wholesale) to 1.2 percent (service) to sales, as opposed to 3 percent of the value-added.

1/

Investment income is taxed separately from other sources of personal income, and the applicable tax rates are independent of other personal income tax rates. See discussion below.

2/

Higuchi (1984) presented estimates of labor supply elasticities for married women. The elasticity with respect to household income was estimated to be -0.24, while the elasticity with respect to their own wage was estimated to 1.1.

3/

For other industrial countries, most empirical studies suggest that the wage elasticity of labor supply is positive, and is greater for women than men (see Hagemann, et al., 1987).

4/

See Chapter I of “Japan--Recent Economic Developments--Supplementary Material” (SM/94/185, Supplement 1, 7/22/94).

1/

The small businesses eligible for special treatment include many self-employed and most farmers.

2/

Iwata (1994), for instance, observed that reducing progressivity does not necessarily mean losses in vertical equity, as it depends on the judgement of the optimal level of vertical equity.

3/

Tachibanaki and Ichioka (1990) argued that a considerable number of Japanese do not prefer too much tax progressivity, and thus, too strong a degree of vertical equity.

1/

These measures include: the abolition of the special corporate surtax (¥0.3 trillion), a reduction in the inheritance tax (¥0.3 trillion), and a reduction in the consumption tax rate on automobiles from 4.5 to 3 percent (¥0.1 trillion).

2/

In addition to a personal basic deduction, an individual over 65 years old is eligible for an elderly deduction of ¥500,000.

1/

For example, the tax threshold for a retired couple with a household head aged 65 or over is about ¥3.3 million, as opposed to ¥2.1 million for a working-aged couple. It should be noted that investment income is taxed separately.

2/

According to the Report on National Consumption Survey by the Management and Coordination Agency, total household assets and net savings are largest for elderly households (with a head aged 65 or over) of all generation groups. Even in flow terms, if compared on the basis of an average annual income divided by the number of people in a household, the average elderly household (¥1.92 million) is more affluent than the majority of households with a working-aged head (¥2.43 million, ¥1.88 million and ¥1.62 million for the head aged in the 50s, 40s and 30s, respectively).

1/

More fundamentally, there is a discussion as to a comprehensive versus scheduler income--some have argued for the introduction of a comprehensive income tax, which aggregates all sources of income and applies a progressive income tax schedule. However, the separate taxation on investment income itself seems to be widely supported in Japan, in view of the fact that an income tax on investment returns involves double taxation of savings.

2/

This is one of the central features of the recent proposal for a “comprehensive business income tax” by the U.S. Treasury. See U.S. Department of the Treasury (1992).

1/

During the period of the bubble economy, the receipts were buoyant, once exceeding ¥2 trillion in 1988.

1/

In contrast to taxes on transaction, taxes on asset holding can be justified on the grounds of both benefit and ability to pay principles of taxation.

2/

Reflecting declining land values, receipts in 1994 are officially estimated to be ¥500 billion. Receipts exceeded ¥500 billion in 1992, although the rate was 0.2 percent in 1992 (as opposed to 0.3 percent from 1993).

3/

OECD (1994), for instance, argued for increasing this tax to promote more efficient patterns of land use.

1/

On a calorie basis, the decline in the self-sufficiency rate was less pronounced--from 54 percent in 1975 to 46 percent in 1993. However, this ratio fell to 37 percent in 1993 owing to a poor rice harvest.

1/

The share of food imports in the total value of Japan’s imports increased by 2 percentage points to 17 percent between 1975 and 1994, while the share of food exports in the total value of Japan’s exports declined by 1 percentage point to 0.5 percent in 1975-94.

1/

This system evolved from the regulations introduced during the War in order to protect the families of the soldiers who had to leave the farms.

2/

For example, permission of the agricultural commission or the government of the prefecture was necessary for setting up or transferring the legal right for possessions, leasehold, and other uses of land (OECD (1987)). The transfer of farmland to other uses required a permission of the governor of the prefecture or the MAFF. Landlords needed to demonstrate just cause in the civil court in order to claim a return of their land from tenants.

1/

From 1955, however, most domestic wheat and barley was sold to the Government (Ministry of Agriculture, Forestry, and Fisheries (1993)). As with rice, all wheat and barley imports require Government permission and must be sold to the Government.

1/

In addition to these policies, border measures, price supports, and input subsidies for agricultural products other than rice were introduced or reinforced (Hayami (1988)).

2/

Since 1990, average production costs have been based on those prevailing on larger and more efficient farms.

1/

Government losses from rice-trading operations increased from ¥67 billion in 1965 to about ¥200 billion in 1970, and ¥390 billion in 1975.

2/

Part-time farmers who derived the major part of their income from nonagricultural activities represented 70 percent of commercial farm households in 1993, compared with 20 percent in the mid-1950s (MAFF (1994)).

3/

The incomes of full-time farm households with no outside sources of income declined from about 93 percent of the average income of salaried workers in 1980, to about 88 percent in 1993. Farm households deriving only a minority of their income from agriculture (i.e., part-time farmers) remained in the most favorable position, with an average annual income over 16 percent higher than that of the average salaried worker in 1993 (GATT (1995)).

4/

In recent years, however, the diversion continued to exceed the target area (OECD (1995)). From 1990 to 1992, 830,000 hectares (about one third of Japan’s total rice-paddy area) were converted to other crops or other agricultural uses. The new set-aside program (“Vitalization Program for Paddy Field Farming”) is currently in operation for the period 1993-95; the target acreage of this program is 600,000 hectares in 1995.

1/

The Japanese diet is the only one among major industrial countries that conforms with the ideal nutritional balance in terms of the calorie supply from proteins (12-13 percent), carbohydrates (57-68 percent), and fats (20-30 percent) (Food Agency (1991)).

2/

According to the Government, “Rice paddies contribute to the preservation of Japan’s land and natural environment through such functions as purifying water by removing nitrogen, and preventing floods and soil erosion” (MAFF (1992), p. 10).

1/

The average size of the farms operated by the farm management bodies was expected to be about 6 hectares in 2030, compared with the average size of commercial farms of 2.4 hectares in 1990.

1/

The Cairns Group, named after the Australian city where its members first met, included Argentina, Australia, Canada, Chile, Columbia, Fiji, Hungary, Malaysia, New Zealand, Philippines, Uruguay, and Venezuela. The Group pushed for elimination of export subsidies and reduction or elimination of domestic support policies.

2/

The Japanese media and many observers in Japan criticized this passive approach. In particular, it was felt that, during the Brussels ministerial meeting in December 1990, the Japanese delegation could have made concessions on the rice issue in the hope of breaking the U.S.-EC stalemate (Rapkin and George (1993), p. 86).

3/

For other agreements on agriculture and assessments of their impact, see FAO (1995), Ingco (1995), and OECD (1995).

1/

Special treatment was allowed on commodities which met the following conditions: (i) commodities that are major staples in the diet; (ii) imports less than 3 percent of domestic consumption at the base period; (iii) no export subsidies have been provided. This exemption will be reviewed in the final year of the implementation period.

2/

A binding defines the maximum tariff that can be applied at the border. If a tariff is bound at, e.g., 30 percent, any duty at the border greater than 30 percent is prohibited whether it is a tax levied by the government or a mark-up charged by a state-trading enterprise. Fisheries is one of the few sectors where a number of tariff rates will remain unbound.

3/

The price trigger is related to 1986-88 average prices expressed in domestic currency. The volume trigger is related to base period import/consumption ratios and varies from 105-125 percent of imports in 1986-88.

1/

These access commitments apply to industrial countries. For developing countries, the minimum access levels were set at 1 percent in 1995 and 4 percent in 2004.

2/

A higher tariff is applied to imports (if any) above the minimum access level.

3/

For example, the U.S. Meat Import Law was translated into a minimum access system with the access given to the same countries which held previous quota rights (e.g., Australia and New Zealand).

4/

These measures are listed in Annex II of the Agreement on Agriculture (“The Green Box”) and include government service programs (research, pest and disease control, training, infrastructure services, etc.); food security stocks; domestic food aid; structural adjustment assistance (e.g., for regional and environmental programs); and certain decoupled transfers and social security payments to producers.

5/

To qualify for this exemption, payments must be based on fixed areas or yields, on a fixed number of livestock, or on 85 percent (or less) of the base level of production.

1/

A tariff quota is a quantitative threshold (i.e., a quota) on imports during a given period beyond which a higher tariff is applied. The lower tariff applies to imports below the quota (i.e., the “in-quota” imports).

2/

The number of duty-free lines in agriculture will rise from 319 (23 percent) to 381 (27 percent), and the number of lines subject to special safeguard requirements will be 144 (10 percent of agricultural tariff lines) (GATT (1955)).

1/

Under the simultaneous buy and sell system, a trader will form a team with a distributor. The teams will submit advance bids to the Food Agency, which will determine how much of a margin a team can collect (up to a maximum of ¥292/kg), and which teams will be permitted to import rice (GATT (1995)).

2/

Before 1991, these prices had been on a declining trend for several years.

3/

Detailed estimates of the effects of the Uruguay Round are discussed in FAO (1995), Goldin and van der Mensbrugghe (1995), Harrison, Rutherford, and Tarr (1995), Hathaway and Ingco (1995), Ingco (1995), and Martin and Francois (1995).

1/

The years 1986-88 were chosen as the base years for tariffication because world prices for many agricultural commodities were the lowest in decades. Thus, when the world price in the base period was compared with the protected and supported internal price, the price gap--which was the measure of the tariff equivalent--was unusually wide (Ingco (1995) and Hathaway and Ingco (1995)).

2/

In establishing the tariffs to be applied in the first year of the implementation of the Agreement (i.e., the initial base tariffs), countries were required to apply a given Uruguay Round methodology (so-called Modalities from Annex 3 of the Agreement) based on prices and protection levels prevailing in the base period, 1986-88. The prices that many countries used to calculate their tariff equivalents were, however, manipulated, resulting in higher initial tariffs than more objective calculations might have produced (Josling et al. (1994); Ingco (1995)).

1/

See “The Direction of Policy Development in Japanese Agriculture in a New International Environment” (Direction of Policy Development) (MAFF (1994)).

1/

The OECD compiles the PSE and CSE on an internationally comparable basis annually. The PSE and CSE can be expressed in several forms: as the total value of transfers (in yen or yen per metric ton), as a percentage of the total value of production or consumption, or as a ratio of the subsidy-inclusive price to the border price.

1/

Total subsidies to producers accounted for 100 percent of the value of rice and wheat production, and 90 percent of the value of milk production in 1993.

1/

Another difference is that the subsidy equivalent calculations do not cover all agricultural commodities; the coverage of the PSE and CSE calculations for Japan was 56 percent of the total value of agricultural production (consumption) in 1994, compared with 66 percent in the United States and 63 percent in the European Community.

2/

The corresponding figures are US$957 per hectare per year for the European Community, and US$194 per hectare per year for the United States.

1/

The wedge between the domestic price of the import and the world price attracts resources into production of import substitutes and away from other sectors where those resources could be used more efficiently.

2/

These estimates were obtained from a computable partial equilibrium model. The demand and supply elasticities were estimated from a system of demand equations, and the labor-output ratios from the Japanese input-output table.

1/

Unit value differentials are calculated by comparing c.i.f. import unit values (i.e., the unit value in Japanese ports, before tariffs or any markup by domestic wholesalers) with domestic producers’ unit values (i.e., the ex-factory or ex-farm unit value before markup by domestic wholesalers). Unit values are then obtained by dividing the declared value of imports, or the value of producers’ shipments, by the number of discrete units or by the appropriate physical unit of measure (e.g., kilograms).

2/

The costs to the economy and to consumers of preserving agriculture related jobs through import protection were estimated at ¥105 million (US$760,000) per job per year in 1989.

1/

Other discussions of the potential effects of VIEs can be found in Dinopoulos and Kreinin (1990), Bhagwati (1991), and Bjorksten (1994).

1/

Irwin (1994) assumes that costs are constant, that is a linear function of output. This difference in assumptions is, however, of little consequence for the results.

2/

dX/dX* along R, which is the slope of R, is less than unity. Symmetrically, since the firms are identical, dX*/dX along R*, which is the inverse of the slope of R*, is less than unity.

3/

The foreign firm has to bear this cost completely in that it has to charge the same final price as the domestic firm.

1/

This is one difference between the results presented here and those reported by Irwin (1994). In particular, he does not point to the existence of a region where the institution of VIEs can improve upon the industry equilibrium with import barriers even when they remain in place.

1/

For expository convenience, the term output gap as discussed in this note is to be interpreted as referring to negative deviations of output from trend (as reported in the charts and table).

1/

Note that the annual output gaps reported in Table 1 are annual averages. Since actual output growth was very weak in 1994, virtually all of the measures imply a much larger output gap in the last quarter of 1994 than in the first quarter of that year.

1/

The smoothing parameter for the HP filter is set to 1600, which is the number used for quarterly data by Prescott (1986) and others in the business cycle literature. This number is not sacrosanct. Increasing the smoothing parameter increases the ratio of the variance of the cyclical component to the variance of the trend component.

2/

The segmented trend was estimated with a break in 1973. The smoothing parameter for the HP filter was set at 100 for annual data as is typical in the business cycle literature (see, e.g., Backus and Kehoe (1992)).

3/

The Akaike information criterion was minimized by the ARIMA(0,1,0) model fitted to real GDP, indicating that the residuals from a random walk model could not be well characterized using a parsimonious ARMA model. Iwamoto and Kobayashi (1992) report a similar result.

1/

The BQ decomposition is more general than the univariate Beveridge-Nelson decomposition in that it does not restrict the permanent component of output to be a random walk.

1/

Ignoring the trend in the unemployment rate leads to an inappropriate measurement of cyclical unemployment. The smoothing parameter for the HP filter was set to 40,000 to calculate the trend unemployment rate, which is estimated to be about 2.5 percent in the first quarter of 1995. This is almost identical to the estimate obtained by fitting a linear trend.

2/

In future work, it would be useful to use a larger system of equations that would allow for the dynamic effects of oil price and monetary shocks, along the lines of the Shapiro-Watson (1988) extension of the BQ methodology.

1/

The BQ decomposition with inflation yields a somewhat smaller measure of the output gap than the other measures discussed above because both inflation and actual output growth remained low during 1992-94--thus the estimates of the annual growth rate of the stochastic trend component of output are correspondingly estimated to be quite low, below 2 percent. Using more realistic estimates of potential GDP growth, even these output gaps would be expected to be on the order of 4 percent by the first quarter of 1995.

2/

For details on the staff’s production function approach to estimating potential output, see Chapter II in Supplement 1 to SM/94/167. This chapter also examines the sensitivity of the estimates to the procedure used for smoothing trend productivity.

3/

The smaller OECD estimate of the current output gap is largely driven by the assumption that trend average hours per worker declined by 1.5 percent per annum during the period 1988-93. This assumption, combined with a decline in the growth rate of “potential employment,” results in a relatively slow rate of growth of the trend labor input, thereby generating an implied growth rate of potential output of only 2.3 percent in 1992 and 1993.

1/

Other labor market indicators such as the ratio of job offers to seekers have also fallen sharply since the recession began and are yet to recover from their cyclical troughs, providing further evidence of the large margin of slack.

2/

Note that this ratio is simply the inverse of labor productivity. This is based on a chart in Robert Feldman et al., “Japanese Macroeconomic Chartbook,” Salomon Brothers, Tokyo, May 1995.

1/

At the one-digit level of disaggregation, the services sector refers to community, business, and personal services. The utilities sector, which has had a relatively stable employment share of around 0.5 percent, is not shown in this chart.

1/

Gross flows of labor across sectors typically dominate net flows. In recessions and periods of major structural change, however, the ratio of net flows to gross flows tends to rise. Lilien (1982, 1990) has argued that a significant fraction of cyclical unemployment in the United States is attributable to such sectoral shifts. The empirical validity of this hypothesis is not important for the purposes of the analysis in this note.

1/

Asset prices have been more volatile than goods prices over the cycle. Kähkönen (1995) provides a detailed analysis of movements in asset prices from the mid-1980s through 1992. Hoffmaister and Schinasi (1994) and Samiei and Schinasi (1994) also examine asset price developments in Japan over this period.

2/

Consumer prices in G-7 countries increased at an 8 1/2 percent average annual rate in the 1970s and at a 5 1/2 percent rate in the 1980s, compared with Japanese inflation rates of 8 3/4 percent and 2 1/4 percent, respectively.

3/

As in other countries, this largely reflects falling prices for computers and other electronic equipment. See Chapters I and VI for discussions of inter-sectoral productivity growth differentials in Japan.

1/

While quarterly changes in the GDP deflator were negative from 1957:Q4 to 1958:Q2, and also from 1986:Q4 to 1987:Q2, the first time that the year-on-year change in the deflator (a more indicative measure of underlying inflation) has declined for three straight quarters was in the period ending in the first quarter of 1995.

2/

Recent movements in the yen are discussed in Chapter I.

3/

The question of price pass-through is examined in Chapter VIII.

4/

Import prices are measured as the GDP deflator for imported goods and services, while potential output is the staff’s estimate derived from a production function approach. Alternative output gap estimates are examined in Chapter V.

5/

Instrumental variables were used to control for the potential endogeneity of the contemporaneous value of import price inflation.

1/

While the individual parameters on imported prices are not statistically significant, this is due to multicollinearity between the contemporaneous and lagged values--an F-test indicates that the coefficients on imported inflation as a group are highly significant.

2/

Such as a faster and/or larger response to falling imported prices than that captured by the estimated equation, or a possible underestimation of the recent size of the output gap or its effect on inflation. Another possibility is that perceptions of the trend rate of inflation have been altered by the extended period of economic slack.

3/

The EPA (1994, page 243) reports that sales by discount stores grew during 1988-92 at a 10 percent annual average rate, compared with growth of 5 3/4 percent and 5 1/2 percent of sales at department stores and supermarkets, respectively.

1/

Per capita GDP is measured at purchasing power parity (PPP) exchange rates relative to the United States, and price levels are calculated as the ratios of market to PPP exchange rates.

1/

The OECD (1995a) estimates that, as a result of tariff and nontariff barriers, prices for agricultural products are over 200 percent above border prices (and up to 800 percent higher for some grains’). Sazanami, Urata and Kawai (1995) compare domestic and import prices for 47 categories of industrial goods, arriving at a differential in terms of unit values of 178 percent. See Chapter III for a discussion of Japan’s agricultural sector.

2/

See OECD (1995b) for a discussion of land-use reforms.

1/

The government recognizes the role structural policies play in affecting price differentials for the nontradable and “potentially tradable” sectors (see, for example, EPA (1994)). Moreover, an interim report by the Price Structure Policy Committee (1994) has made recommendations concerning the housing sector, and the Government’s recently adopted “Emergency High Yen Appreciation Economic Policy” (April, 1995) also contains measures to raise productivity and reduce costs in the construction sector.

1/

A comparison of wholesale prices would be preferable because of the nontraded local services element embodied in retail prices. Note, however, that, if anything, the use of retail price data should have led to systematically lower prices of Japanese products abroad because of the higher costs of services in Japan.

1/

The reasons for Japan’s low import-to-GDP ratio have been a subject of considerable discussion. See, for example, Bergsten and Noland (1993), Lawrence (1993), and Saxonhouse (1993).

2/

The influential sticky-price monetary model is that of Dornbusch (1976). A time-period is defined as a quarter. The “impact” effect is, therefore, defined as the change in the exchange rate during a quarter. For typical parameter values see Chadha (1990).

1/

The larger than proportional impact is due to the well-known overshooting effect. In comparing this to other estimates of overshooting it is important to keep in mind the frequency at which the comparison is made. Since a considerable proportion of the overshooting is reversed in four quarters, annual models will typically produce substantially less overshooting on impact.

1/

Hooper and Marquez (1993) provide a useful survey of some of the literature.

1/

Marston’s measure of pass-through--discussed below in the subsection on pricing-to-market--is not directly comparable to these other estimates and so is not mentioned here.

1/

Or, for that matter, different prices in two foreign markets.

1/

The difference in the level of retail prices in Japan with that in other major industrial countries is discussed in Chapter VII.

2/

McKinnon (1993) and Chapter I also discuss this transmission mechanism.

1/

Regressions were also carried out using instrumental variables and restricting the coefficients on the lags to equal unity. The use of instrumental variables had little effect on the coefficients. For consumer prices, the restriction that the coefficients on lagged inflation summed to unity could not be rejected. The restriction raised the coefficients on lagged inflation and lowered somewhat the coefficient on import prices from 0.07 to 0.055.

Japan: Background Papers
Author: International Monetary Fund